New Provinces in Pakistan Could Add Up to Rs. 730 Billion in Annual Costs

Creating new provinces in Pakistan could add substantial recurring costs to the public budget, according to a new analysis by the Policy Research Institute of Market Economy, or PRIME.

The think tank estimates that creating two additional provinces from Punjab could cost between Rs. 47 billion and Rs. 57 billion every year. A far larger restructuring exercise that upgrades 30 divisional units into provinces could raise the annual recurring bill to between Rs. 610 billion and Rs. 730 billion.

The analysis does not argue that new provinces are impossible. Instead, it says the financial cost should be formally calculated before constitutional or legislative changes are pursued.

The debate over new provinces in Pakistan often focuses on representation, distance from provincial capitals and administrative control. PRIME’s analysis adds a fiscal question: can proposed provinces pay for the institutions needed to run them without reducing the funds available for health, education, infrastructure and other services?

New Provinces in Pakistan Need More Than Political Support

A new province would need far more than a boundary on a map.

It would require a governor, chief minister, provincial cabinet, assembly, secretariat, departments, high court and related administrative structures. These institutions need offices, employees, security, information systems, transport, housing and recurring operating budgets.

The costs are not limited to the first year. Once established, provincial institutions require funding every year.

PRIME says proposals for new provinces in Pakistan should include a formal fiscal-costing exercise before the political process moves forward. The study says this assessment should estimate the recurring cost of the key institutions and compare it with the likely resources available to each proposed province through the National Finance Commission, or NFC, framework.

This would help policymakers assess whether the expected administrative benefit justifies the continuing financial burden.

What Does the Analysis Estimate?

The think tank’s low-cost scenario puts the annual recurring cost of one new provincial government at Rs. 22.4 billion. Its high-cost scenario puts the same figure at Rs. 25.9 billion.

On that basis, creating two additional provinces would cost an estimated Rs. 47 billion to Rs. 57 billion each year.

The study also considers a much broader scenario in which 30 divisions are upgraded to provincial status. In that case, the total annual recurring cost is estimated at between Rs. 610 billion and Rs. 730 billion.

These figures cover recurring government expenses. They should not be read as the total cost of creating new provinces in Pakistan.

A full transition could also involve one-time spending on land, buildings, staff transfers, computer systems, records, courts, policing arrangements and other infrastructure. The exact cost would depend on the final constitutional design, institutional setup and location of each new capital.

Therefore, the report’s estimates are best viewed as an illustration of the ongoing administrative cost rather than a final price tag for any specific proposal.

Punjab Scenario: South Punjab and Bahawalpur

The analysis looks at a scenario in which Punjab is reorganised into three units: South Punjab, Bahawalpur and the remaining Punjab.

Under an illustrative NFC allocation, South Punjab would receive Rs. 1 trillion and Bahawalpur would receive Rs. 537 billion. The remaining Punjab would retain its own allocation under the revised structure.

The report suggests that creating relatively large provinces produces a smaller fiscal burden compared with creating many small ones. This is because a large province can spread the cost of its core government institutions across a bigger population and a larger revenue envelope.

That does not mean the process would be simple. New provinces in Pakistan would still require agreement on constitutional changes, asset sharing, civil-service arrangements, provincial boundaries, political representation and the future NFC formula.

However, the study indicates that a limited restructuring involving larger units is financially less demanding than breaking the country into a large number of small provinces.

Why Small Provinces Face a Bigger Fiscal Challenge

The financial pressure rises when a proposed province has a small population or a limited expected NFC allocation.

Every provincial government requires certain fixed institutions. A small province may still need a governor’s office, chief minister’s office, assembly, secretariat, high court and core departments, even if its population is far lower than that of a large province.

As a result, a bigger share of its available funds may be spent on administration.

PRIME used a 10% fiscal-sustainability benchmark based on its low recurring-cost estimate. It found that 16 of the 30 proposed provinces would remain at or below that threshold, while 14 would exceed it.

The pressure was highest in some of the smallest proposed units. The analysis estimated that a core provincial structure could consume about 49% of Loralai’s illustrative allocation, 45% of Zhob’s and 37% of Rakhshan’s under the low-cost scenario.

The report also found that every proposed province with a population below 1.2 million would need to spend more than one-third of its NFC allocation on the core provincial structure.

That leaves less room for public services and development spending.

NFC Resources Would Be Central to Any New Province Plan

The NFC Award is central to the debate because provincial governments rely heavily on transfers of divisible-pool revenues.

When Pakistan’s provinces receive funds through the NFC framework, those resources support provincial responsibilities such as education, health, local development and other public services. If the number of provinces changes, the formula and distribution arrangements would need to be considered carefully.

PRIME’s analysis uses illustrative allocations, not confirmed future NFC shares. Actual allocations would depend on the final arrangement and the criteria agreed by the federal government and provinces.

This distinction is important. A proposed province cannot be assessed only by its population or geographical size. Its ability to function also depends on its revenue base, expenditure needs, transfer formula and capacity to raise its own resources.

For smaller units, weak own-source revenue could make the new administrative structure harder to sustain. A large recurring bill could limit spending on schools, hospitals, roads, water systems and other services that citizens expect from a provincial government.

Better Local Governments or More Provinces?

PRIME’s main policy recommendation is to prioritise stronger local governments if the objective is better service delivery.

Local governments are closer to residents. They can potentially respond faster to needs involving water, sanitation, local roads, land use, waste management and municipal services.

A stronger local-government system does not eliminate the case for new provinces in Pakistan. People may still support new provincial units for political representation, cultural identity or easier access to provincial institutions.

However, the think tank argues that new provincial boundaries should not be treated as the only solution to administrative problems.

If public services are weak because local bodies lack authority, money, staff or accountability, merely adding another tier of provincial administration may not solve the underlying issue.

This is the central trade-off. A new province could bring government closer to some citizens. Yet it could also create a costly new administrative layer if power and resources remain concentrated away from local communities.

The Need for a Formal Costing Exercise

The report’s strongest recommendation is procedural rather than political.

Before any constitutional amendment or legislative move, policymakers should prepare a detailed fiscal-costing exercise. That work should estimate the annual spending needed for key institutions and identify the likely NFC envelope for each proposed province.

A credible analysis should also examine:

• One-time transition and infrastructure costs.
• Staffing needs and civil-service transfers.
• The proposed provincial capital and office requirements.
• High-court, assembly and secretariat costs.
• Revenue capacity and expected federal transfers.
• The effect on existing provinces.
• Funding available for development and public services after administrative costs.

This would make the debate more transparent. Citizens and lawmakers could compare the possible administrative benefits with a clearer estimate of the cost.

It would also help avoid a situation in which a new province is created without enough funds to deliver the improvements that supporters expect.

New Provinces in Pakistan: A Fiscal Question, Not Only a Political One

The report does not settle Pakistan’s long-running debate over provincial restructuring. It does, however, show why financial planning must be part of it.

A limited reorganisation involving larger provinces may be easier to absorb within public finances. A much wider division-based restructuring could create high fixed costs for several small units.

New provinces in Pakistan may offer political and administrative advantages in some cases. Still, those benefits need to be measured against recurring expenditure, financial sustainability and the potential effect on service delivery.

The question is not simply whether new provinces should be created. It is whether each proposed province would have enough resources left, after paying for its own core institutions, to improve the daily services that residents need.

The Bottom Line

PRIME estimates that two additional provinces could add Rs. 47 billion to Rs. 57 billion in annual recurring costs. A 30-province model could raise that burden to as much as Rs. 730 billion a year.

The analysis argues that Pakistan should complete formal fiscal costing before pursuing major constitutional changes. It also recommends stronger local governments as the more direct route to improving public service delivery.

The findings do not rule out new provinces. They underline that any proposal needs a realistic funding plan, clear institutional design and enough fiscal space to serve citizens after the cost of government itself is paid.